Category Archives: Construction Defect

NY Court Applies NJ Law to NY CD Case and Finds a Lack of Fortuity.

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In National Union Fire Ins. Co of Pittsburgh, PA v. Turner Constr. Co., et al., National Union insured a construction project through an Owner Controlled Insurance Program (OCIP), pursuant to which the construction project owner procured insurance on behalf of all parties performing work on the project. National Union issued the OCIP policy.

After a construction accident where a segment of the decorative pipe rail system on the exterior of the project fell to the street from the eighth floor of the building, an investigation determined that more than 20% of the pipe rail connections surveyed did not conform to the building plans. Other construction problems with the installation of the pipe rail network were also discovered.

National Union agreed to provide a defense under a reservation of rights, but then filed a declaratory judgment action declaring that the policy did not cover the underlying claims. National Union also sought reimbursement of its incurred defense costs.

National Union’s summary judgment motion was granted by the trial court, which held that the CGL policy did not cover GSJC’s claims. The motion court also directed that National Union be reimbursed the costs and fees it had paid for the defense. An appeal resulted.

The Appellate Division noted that under New Jersey law, which was controlling, there is no “occurrence” under a commercial general liability policy where the only alleged damage is to the insured’s own work. The court held that faulty workmanship is not an occurrence because of a lack of fortuity.

However, the Appellate Division reversed the portion of the motion court’s decision that required defendants to reimburse National Union for defense costs, as the policy did not differentiate between covered and uncovered claims. Based on the failure of the policy to differentiate between covered and uncovered claims, the Court held that the reimbursement of defense costs was precluded by the policy.

Special thanks to Mike Nunley for his contributions to this post. For more information, please contact Bob Cosgrove at .

Get the Gist? PA Superior Court Clarifies Coverage for Faulty Workmanship Claims.

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It is well-settled in Pennsylvania that an insurer may properly disclaim coverage where a third-party complaint alleges faulty workmanship in the insured’s own work. Still, it appears that some policyholder law firms have recently latched on to the Pennsylvania Superior Court’s decision in Indalex, Inc. v. National Union Fire Insurance Co. to claim that Pennsylvania’s courts are “opening the door” to coverage of faulty workmanship claims. Convinced as they may be, however, we find that a careful reading of Indalex suggests the Court’s affirmation of the general rule that claims of faulty workmanship do not constitute “occurrences” under Pennsylvania law.

In Indalex, the insured manufacturer of certain watertight doors and windows brought suit against National Union Fire Insurance Co. for, amongst other things, failure to provide insurance coverage under a commercial umbrella policy. Specifically, the insured took exception to National Union’s disclaimer of coverage in several out-of-state suits wherein homeowners alleged strict products liability, negligence, breach of warranties, and breach of contract. Although National Union prevailed on summary judgment by arguing that the claims for breach of warranty and breach of contract barred coverage entirely under Pennsylvania law, the insured appealed to the Superior Court that the trial judge had improperly applied Pennsylvania’s “gist of the action” doctrine to decide an insurance coverage dispute.

On appeal, the three-judge panel of the Superior Court expressly found that the subject umbrella policy unambiguously disclaimed coverage for “property damage in [the insured’s] product” or work. Nevertheless, the Panel noted that the underlying complaints sounded in distinct product-based torts in addition to claims of faulty workmanship in the watertight doors and windows. The trial court it held, therefore, erred as a matter of law when it applied Pennsylvania’s “gist of the action” doctrine to conclude that each of the underlying lawsuits were, taken as a whole, a recasting of uncovered claims of faulty workmanship. Bearing in mind the axiom that the duty to defend is triggered if but a single claim in a multi-claim lawsuit is potentially covered under the policy, the Superior Court ultimately declined to find that the underlying suits were beyond the scope of coverage where they included allegations of damage to persons or property other than the insured’s own work.

Rather than upending Pennsylvania jurisprudence with respect to the insurance coverage of faulty workmanship claims, we believe that the Superior Court’s decision in Indalex merely reaffirms the scope of the duty to defend in multi-claim cases alleging defective workmanship. Consequently, it is our opinion that Indalex far from serves as a polestar for insureds seeking coverage of faulty workmanship claims, and instead reaffirms the fact that damage to the insured’s work does not constitute an “occurrence” under Pennsylvania law.

Special thanks to Adam Gomez for his contributions to this post. If you have any questions about it, please contact Bob Cosgrove at .

Construction Contracts and Public Nuisance in NY.

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Back in the days when Karen Carpenter was queen of the music world, the New York Counties of Nassau and Suffolk (i.e. Long Island) decided to embark upon a major sewer construction project. Any number of contractors were hired to tear up roads and lay down pipes. The work continued until the mid 1980s, when Michael Jackson was king (amazing how musical tastes can change).

In approximately 2009, the towns where the work was done began to receive complaints that the roads where the pipes had been laid had sunk into the ground and otherwise suffered problems. The townships, including lead plaintiff Oyster Bay, then began a series of lawsuits against any number of defendants. [Full disclosure – we represented one of the defendants in the lawsuits and therefore fully participated in all that you are about to hear (including the Court of Appeals arguments)].

The obvious problem that the townships faced was the statute of limitations, since the work ended many, many years ago. To get around this problem, the townships pleaded a continuing public nuisance cause of action. The trial court dismissed the complaints and the dismissal was twice affirmed by the Second Department, an intermediate court of appeals. NY’s Court of Appeals then took up the case. In a lengthy decision (with a concurring opinion), the Court unanimously affirmed the dismissal. Two issues were addressed by the Court.

First, the Court was asked to determine whether the townships only had six years after “substantial completion” of the work to file a lawsuit. The townships argued that they were not bound to the substantial completion rule because they were not parties to the contract. Five members of the Court of Appeals disagreed with that argument and instead held that because the townships were beneficiaries of the contract, they had six years from “substantial completion” of the work to commence defective construction (and resulting property damage) claims.

Second, the Court, in a case of first impression, had to specify what the elements of a continuing public nuisance are. All members of the Court held that to make out a prima facie case of continuing public nuisance both the acts and the damages must be continuing. Here, the Court ruled that only the damages were alleged to have continued (as the acts were conceded by all parties to have ended in approximately 1986), and thus the tort could not be made out.

This decision is obviously welcome news for contractors and their insurers. If the Court had changed the law through this case, construction defect claims would have effectively been converted into endless long-tail exposure cases.

For more information about this post, please contact Bob Cosgrove at .

Contractor Has Reasonable Expectation Of No Liability 10 Years After Substantial Completion of Work (NJ)

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When it comes to construction defects, New Jersey courts and Legislature have wrestled with how to provide time for claims to be brought without an unending risk to contractors and developers. At common law, there was a “completed and accepted rule” that limited the exposure of architects, contractors, and the like once the work was completed and approved by the property owner. However, as the courts whittled away at this with the discovery rule, the Legislature reacted with the Statute of Repose, which fixes a ten year period in which a party can bring a suit for defective design or construction. With this statute providing an outside date by which a contractor or architect could reasonably expect to have no further potential liability, the courts entirely repudiated the completed and accepted rule. One might think that the statute settled the issue once and for all. However, an argument can always be made, and it was.

In Fairview Heights Condominium Association, Inc. v. R.L.Investors, the plaintiff condominium association brought suit against the developer and others related to construction issues dating to 1988. The association sought to circumvent the Statute of Repose since the development was not turned over to the association until 75% of the units were sold in 2001. Thus, the association argued that the statute should not be applied the same against it as it is against other potential claimants and sought exception for its suit filed in 2008 – twenty years after substantial completion of the project.

The New Jersey Appellate Division did not agree. It held that the triggering point for the statute of repose is substantial completion of the project irregardless of when the developer relinquishes control of the managing association. Ten years means ten years. The court thus, upheld summary judgment granted to the developer. In reaching this decision, the Court spoke of fairness to the defendant and its right to be “secure in its reasonable expectation that the slate has been wiped clean of ancient obligations.”

For more information, contact Denise Fontana Ricci at .

No Lights, No Problem (NY)

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In Grimaldi v. 221 Arlington Realty, LLC, the Second Department granted an out-of-possession landlord summary judgment and reversed the trial court’s decision. Plaintiff fell while ascending an exterior staircase at his place of employment, a location his employer leased from the defendant. The lease provided that the employer was responsible for making all routine repairs including building fixtures, appliances and their appurtenances. Plaintiff alleged that the front porch light at the building was not working properly, but did not allege any violation of statute or regulation.

The out-of-possession landlord moved on the basis of the lease, stating that it was not contractually obligated to maintain the lighting at the premises or repair any hazardous condition, that it never endeavored to perform such maintenance and that it did not violate any statute or regulation. The Second Department agreed with defendant and granted the motion for summary judgment, finding that plaintiff failed to raise a triable issue of fact.

Out-of-possession landlords should take note: The language of your lease, coupled with your activity in respect of the premises, will determine your liability status for a dangerous condition

Thank to Alison Weintraub for her contribution to this post.  If you have an questions, please email Paul at .

Lift with your Legs! General Contractor not Liable for Sub’s Employee’s Injuries (NJ)

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In Knopka v. Fred Schiavone, et. al., plaintiff was injured while moving stone lintels during the construction of a child development center. The general contractor (“Schiavone”) hired plaintiff’s employer, J. Palermo Masonry (“Palermo”) to install the lintels above windows. Greyhawk North America, LLC (“Greyhawk”) was the construction manager responsible for budgeting, scheduling and monitoring of Schiavone’s safety program. Defendant Paul Brothers delivered thirty lintels to the site, each weighing between 210 and 425 pounds. Palermo would then transport the lintels by fork lift closer to the windows for installation. Due to the minimal space between the lintels, the fork lift was unable to lift them from the pallets. The plaintiff was sliding the lintels so they could be accessed by the fork lift when he injured his back.

Plaintiff’s expert opined that Schiavone knew moving lintels in this manner could cause injury as evidenced by the implementation of its safety policy instructing  workers on heavy lifting. The expert also asserted that Grayhawk was responsible for job-site safety and that Paul Brothers failed to properly space the lintels and warn of their heavy weight. The Trial Court granted Schiavone and Greyhawk’s motions for summary judgment finding no breach of duty as they were not advised of Palermo’s method of moving the lintels prior to plaintiff’s acitivites. The Court also granted summary judgment to Paul Brothers finding that the lintels were not deficiently designed or manufactured and because the risk of manually lifting the lintels was obvious. Plaintiff appealed the grant of  summary judgment to all three defendants.

The Appellate Division affirmed the summary judgment orders. Traditionally, a general contractor’s immunity from liability for the personal injuries of a subcontractor’s employee can be disturbed only when the general contractor retains control over the means and methods of the work being performed. Here, however, it was clear that Palermo, rather than Schiavone, retained control over transporting the lintels. There was also no foreseeable risk of injury; if a lintel was too heavy, it would be expected that a worker would not lift it. Moreover, Schiavone assured that Palermo received its safety policy which provided guidelines for heavy lifting. The Appellate Division found that imposing a duty on Schiavone to do more than remind Palermo of the obvious would not be fair. As to Grayhawk, the evidence did not demonstrate that its monitoring was inadequate. The Appellate Division also held that additional warnings were not required by Paul Brothers as the weight of the stone should have been self-evident.

Common sense prevails:  don’t forget to lift with your legs!

Thanks to Andrew Marra for his contribution to this post.  If you have any questions, please email Paul at

 

 

 

 

PA Court Suggests Bright-Line Rule in Coverage of Construction Defect Claims

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An Allegheny County trial judge recently granted summary judgment in favor of two excess insurers on a matter of first impression relating to the coverage of claims for faulty workmanship.

In the case of American Home Assurance Co. v. Trumbull Corp., Trumbull was employed to prepare the foundational pad on which a new J.C. Penney store would be built in southwestern Pennsylvania. Trumbull completed its portion of the project in late 2006, but J.C. Penney and other shopping center tenants began to experience foundational cracks due to settling and sued for faulty workmanship shortly thereafter. Although Trumbull’s primary insurer agreed to defend the case under a reservation of rights, American Home Assurance and National Union Fire Insurance quickly instituted a declaratory judgment action against the contractor to disclaim excess coverage. The insurers argued that damage to the tenants’ buildings did not constitute an “occurrence,” that is, an accident, in light of Pennsylvania’s recent decisions on the coverage implications of faulty workmanship.

In considering the insurers’ summary judgment motions, Judge R. Stanton Wettick, Jr. quickly pointed out that Pennsylvania courts have yet to address this specific issue. He explained that coverage of faulty workmanship claims has been considered in three factual scenarios, namely: (1) damage to the work itself; (2) damage to the larger project where the work was performed pursuant to a contract between the insured and property owner; and (3) damage to the larger project where there is no contract between the insured and property owner. Although Pennsylvania courts unanimously agree that an insurer may properly disclaim coverage where the damage is to the work itself, judges have applied two conflicting lines of reasoning in respect of the remaining two situations. On the one hand, some previous cases have required coverage for ancillary damage while others have hold that faulty workmanship can never constitute an “occurrence.”

According to Judge Wettick, American Home Assurance presented a fourth factual scenario and thus an opportunity to reconcile the inconsistent treatment of faulty workmanship claims in coverage disputes. He ultimately concluded that the weight of authority supported a growing trend of per se disclaimers and ruled that the excess insurers could decline coverage solely on the nature of the faulty workmanship claim.

While the decision is not precedential, Judge Wettick’s well-reasoned opinion in American Home Assurance indicates that Pennsylvania courts are rapidly approaching a bright-line rule with respect to coverage of faulty workmanship and construction defect claims. Just as important, the ruling in American Home Assurance is likely to provide Pennsylvania’s appellate courts with the opportunity to address definitively coverage issues in construction defect and provide a modicum of predictability to these disputes.

Thanks to Adam Gomez, law clerk, for this post. If you have any questions or comments, please email Paul at .

NY Court of Appeals Redefines “Arising Out Of.”

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The phrase “arising out of” has long been broadly construed by New York’s courts. This has proven beneficial to many a would be additional insured. Unfortunately, the party may be about to stop. In the case of Worth v. Admiral, et al. (May 1, 2008), the Supreme Court was confronted with a situation in which a general contractor and would-be additional insured sought coverage from the subcontractor and named insured’s insurer. The general contractor argued that even though it had conceded that the subcontractor’s work was not negligent, the underlying personal injury action “arose” from the subcontractor’s work and therefore it was entitled to coverage. The First Department agreed and ordered the subcontractor’s carrier to provide coverage. The Court of Appeals, however, disagreed and held that once the general contractor conceded that the subcontractor was not negligent, it could no longer argue that the underlying accident arose out of the “general nature” of the subcontractor’s work.

http://www.loislaw.com/advsrny/flwhitview.htp?lwhitid=7856961